Friday, May 21, 2010

The Manmohan Singh government completes 6 years in office today. Alas, it has nothing to show by way of achievement except making India an American satellite. As the following assessment by Prakash Karat underlines, if there is an impression of drift and being directionless, the Congress government has only itself to blame for this plight. After thinking it can go ahead with its own policy prescriptions, it now finds itself in a position where its partners in Government often look at things differently and assert themselves.

The present UPA government is completing one year of its tenure on May 22. Unlike the first UPA government, its second edition did not spell out a common minimum programme. Instead, the Congress-led government began by reiterating its commitment to pursue the neo-liberal agenda. It announced that it would take up those policy measures which it could not push through in its first term in office.

The government also promised to bring in some welfare measures for the aam aadmi. On foreign policy, the government stated that it would adhere to the path taken by the first UPA government of aligning India's foreign policy in tune with the strategic alliance with the United States of America.

The one-year of the UPA government has been notable for the following:

Firstly, it has totally failed to tackle the relentless price rise of essential commodities particularly food items. This has been the biggest cause for people's suffering in the past year; for the poor it has meant less food and more hunger and malnutrition.

This is not a "failure" as such but an outcome of the determination to pursue neo-liberal policies. Food items and other essential commodities are traded and speculated in the market in a big way. The forward trading system is the playground for big trading companies and corporates. The government is in the least interested in curbing these interests who are making huge profits.

Secondly, the Congress-led government is in the grip of finance capital and the sway of big business. It believes in cutting taxes for the rich; providing a tax bonanza for big business and maintaining favourable terms for foreign finance speculators.

The Direct Taxes Code which the government proposes to usher in will make India one of the least taxed countries as far as the rich are concerned. In the last financial year, the government provided Rs. 80,000 crore of tax concessions to the corporates. The disinvestment of shares in the profitable public sector units is the favoured agenda of both Indian big business and the US corporate interests.

Every sphere of policy making, whether it concerns the pricing of gas, the allocation of telecom spectrum, opening up of mining and minerals, the financial sector, retail trade or allowing foreign educational institutions into the country - bears the imprint of a government pandering to big business and their foreign finance collaborators.

Thirdly, this type of growth under the neo-liberal regime has spawned crony capitalism. The nexus between big business and politics has become the hallmark of the Congress regime. The legitimacy provided to foreign capital flows from dubious sources through the Mauritius route and other tax havens; the huge illegal mining business flourishing under political protection; the refusal to discipline and penalize law breaking and tax evasions on a large scale on the part of the super rich - all this has promoted a unhealthy and perverted capitalism which is celebrated as India's growth story.

What this has produced is corruption and illegality on a large scale which affects every sphere of society. The first year of the government has seen the IPL affair, the 2G spectrum allocation scam and the mining scandal of the Reddy brothers. All this can be directly sourced to the nexus between big business and ruling politicians.

Fourthly, the UPA government's concern for the aam aadmi has proved to be shallow. The Congress and the UPA government are conscious that some relief has to be provided to the people who are the worst victims of the neo-liberal policies.

During the UPA I tenure, the National Rural Employment Guarantee Act, the farm loan waiver and the Forest Rights Act were some such measures. These were part of the Common Minimum Programme and came into being mainly due to the consistent pressure and struggles waged by the Left parties.

However, under the UPA II, the government has failed to legislate even one substantial measure for relief. The proposed Food Security Bill would have in no way enhanced food security for the people.

After one year, the government is still debating how to bring about such a measure. The Public Distribution System has been further weakened and curtailed. The plight of the farmers does not seem to concern the government which has cut the fertilizer subsidy by Rs. 3000 crore in the current Union budget.

The Common Minimum Programme of the first UPA government had promised to increase public expenditure in education to 6 per cent of the GDP and in the sphere of health to 2 to 3 per cent of the GDP.

As far as education is concerned the combined central and state expenditure is still below 4 per cent. In the case of health the combined budgetary allocation of the Union and state budgets was a meager 1.06 per cent of the GDP in 2009-10, far below the target of 2-3 per cent.

Fifthly, the UPA government has failed to utilize the favourable political atmosphere and the strength of the secular forces in parliament to push for firm anti-communal measures. It seems visibly reluctant to come to terms with the Ranganath Mishra Commission report recommending reservation for the minorities on the basis of their socio-economic backwardness. There has been a noticeable lack of political initiative in dealing with the simmering problem of Kashmir.

As far as tackling the Maoist violence is concerned, the UPA government tends to treat it solely as a law and order problem without realizing that some of its own policies like the licence for indiscriminate mining in the forest areas is alienating the tribal people.

Moreover, it finds itself hampered by its own partner in government, the TMC. Mamata Banerjee has declared that there are no Maoists in West Bengal and therefore there is no need for joint operations against them.

Sixthly, foreign policy under the Manmohan Singh Government has remained steadfast in its fealty to the United States. As a quid pro quo for the nuclear deal, India has agreed to buy billions of dollars of US arms and equipment.

The End Use Monitoring Agreement which would allow American inspections on Indian soil was signed. The Civil Nuclear Liability Bill which has been introduced in parliament to meet the demand of the United States is patently against the interests of the Indian people. The growing military and security collaboration with the US and Israel affects the pursuit of an independent policy.

India has gone along with the United States which is targeting Iran on the nuclear issue. It once more voted against Iran in the IAEA, unlike other non-aligned countries. India is not playing the role of a leading non-aligned country.

In contrast, President Lula De Silva of Brazil has stood up to the United States and refused to go along with the campaign for further sanctions on Iran. President Lula has visited Tehran for talks with the Iranian leadership to find a way out of the impasse and to come to some agreement with the help of Turkey.

One of the few positive aspects in foreign policy is the Prime Minister's refusal to adopt a confrontationist stance towards Pakistan despite what sections in his government and party wish.

The great potential of shaping an independent foreign policy and strengthening of multi-polarity by India's vigorous diplomacy and energising forums like the BRIC, IBSA and the trilateral meetings of the foreign ministers of Russia, China and India is being underplayed.

Politically, the striking outcome of the first year of the UPA government is its increasing vulnerability. In May 2009, the UPA won the elections but failed to get a majority. The Congress leadership ignored this reality and became complacent with the unilateral declaration of support by parties like the BSP, SP, RJD and the JD(S). By the end of the first year that complacency has been shattered.

During the last budget session, the Congress had to adopt the tactic of bargain and striking deals to garner support from amongst these parties. The last three weeks of the budget session have witnessed the manouevres to prop up the government's majority against the cut motions and the struggle to ensure the passage of legislations.

The cynical use of the CBI for political purposes is undermining the credibility of the agency. The wheeling and dealing that saw the postponement of the Women's Reservation Bill in the Lok Sabha and the introduction of the Civil Nuclear Liability Bill - all portend a tortuous path for the future.

If there is an impression of drift and being directionless, the Congress government has only itself to blame for this plight. After thinking it can go ahead with its own policy prescriptions, it now finds itself in a position where its partners in Government often look at things differently and assert themselves. There is growing opposition within parliament.

As far as the people are concerned, their experience is of a government increasingly callous to their sufferings due to price rise, while it showed great solicitude for big business and the corporates when it felt the impact of the global recession.

After the first six months of the government, there has been the rising tempo of popular struggles and movements. A peak in this struggle was reached with the April 27 hartal called by the 13 opposition parties. A spate of struggles of different sections of the working people have taken place. The struggle is on against the harmful policies of the government and to defend the livelihood and the rights of the working people. The question is whether the UPA government has learnt any lessons from its first year in office.

Friday, May 14, 2010

The financial crisis has unveiled a new set of public villains—corrupt corporate capitalists who leveraged their connections in government for their own personal profit. During the Clinton and Bush administrations, many of these schemers were worshiped as geniuses, heroes or icons of American progress. But today we know these opportunists for what they are: Deregulatory hacks hellbent on making a profit at any cost. Without further ado, here are the 10 most corrupt capitalists in the US economy.

1. Robert Rubin

Where to start with a man like Robert Rubin? A Goldman Sachs chairman who wormed his way into the Treasury Secretary post under President Bill Clinton, Rubin presided over one of the most radical deregulatory eras in the history of finance. Rubin's influence within the Democratic Party marked the final stage in the Democrats' transformation from the concerned citizens who fought Wall Street and won during the 1930s to a coalition of Republican-lite financial elites.

Rubin's most stunning deregulatory accomplishment in office was also his greatest act of corruption. Rubin helped repeal Glass-Steagall, the Depression-era law that banned economically essential banks from gambling with taxpayer money in the securities markets. In 1998, Citibank inked a merger with the Travelers Insurance group. The deal was illegal under Glass-Steagall, but with Rubin's help, the law was repealed in 1999, and the Citi-Travelers merger approved, creating too-big-to-fail behemoth Citigroup.

That same year, Rubin left the government to work for Citi, where he made $120 million as the company piled up risk after crazy risk. In 2008, the company collapsed spectacularly, necessitating a $45 billion direct government bailout, and hundreds of billions more in other government guarantees. Rubin is now attempting to rebuild his disgraced public image by warning about the dangers of government spending and Social Security. Bob, if you're worried about the deficit, the problem isn't old people trying to get by, it's corrupt bankers running amok.

2. Alan Greenspan

The officially apolitical, independent Federal Reserve chairman backed all of Rubin's favorite deregulatory plans, and helped crush an effort by Brooksley Born to regulate derivatives in 1998, after the hedge fund Long-Term Capital Management went bust. By the time Greenspan left office in 2006, the derivatives market had ballooned into a multi-trillion dollar casino, and Greenspan wanted his cut. He took a job with bond kings PIMCO and then with the hedge fund Paulson & Co.—yeah, that Paulson and Co., the one that colluded with Goldman Sachs to sabotage the company's own clients with unregulated derivatives.

Incidentally, this isn't the first time Greenspan has been a close associate of alleged fraudsters. Back in the 1980s, Greenspan went to bat for politically connected Savings & Loan titan Charles Keating, urging regulators to exempt his bank from a key rule. Keating later went to jail for fraud, after, among other things, putting out a hit on regulator William Black. ("Get Black – kill him dead.") Nice friends you've got, Alan.

3. Larry Summers

During the 1990s, Larry Summers was a top Treasury official tasked with overseeing the economic rehabilitation of Russia after the fall of the Soviet Union. This project, was, of course, a complete disaster that resulted in decades of horrific poverty. But that didn't stop top advisers to the program, notably Harvard economist Andrei Shleifer, from getting massively rich by investing his own money in Russian projects while advising both the Treasury and the Russian government. This is called "fraud," and a federal judge slapped both Shleifer and Harvard itself with hefty fines for their looting of the Russian economy. But somehow, after defrauding two governments while working for Summers, Shleifer managed to keep his job at Harvard, even after courts ruled against him.

That's because after the Clinton administration, Summers became president of Harvard, where he protected Shleifer. This wasn't the only crazy thing Summers did at Harvard—he also ran the school like a giant hedge fund, which went very well until markets crashed in 2008. By then, of course, Summers had left Harvard for a real hedge fund, D.E. Shaw, where he raked in $5.2 million working part-time. The next year, he joined the the Obama administration as the president's top economic adviser. Interestingly, the Wall Street reform bill currently circulating through Congress essentially leaves hedge funds untouched.

4. Phil and Wendy Gramm

Summers, Rubin and Greenspan weren't the only people who thought it was a good idea to let banks gamble in the derivatives casinos. In 2000, Republican Senator from Texas Phil Gramm pushed through the Commodity Futures Modernization Act, which not only banned federal regulation of these toxic poker chips, it also banned states from enforcing anti-gambling laws against derivatives trading. The bill was lobbied for heavily by energy/finance hybrid Enron, which would later implode under fraudulent derivatives trades. In 2000, when Phil Gramm pushed the bill through, his wife Wendy Gramm was serving on Enron's board of directors, where she made millions before the company went belly-up.

When Phil Gramm left the Senate, he took a job peddling political influence at Swiss banking giant UBS as vice chairman. Since Gramm's arrival, UBS has been embroiled in just about every scandal you can think of, from securities fraud to tax fraud to diamond smuggling. Interestingly, both UBS shareholders and their executives have gotten off rather lightly for these acts. The only person jailed thus far has been the tax fraud whistleblower. Looks like Phil's earning his keep.

5. Jamie Dimon

J.P. Morgan Chase CEO Jamie Dimon has done a lot of scummy things as head of one of the world's most powerful banks, but his most grotesque act of corruption actually took place at the Federal Reserve. At each of the Fed's 12 regional offices, the board of directors is staffed by officials from the region's top banks. So while it's certainly galling that the CEO of J.P. Morgan would be on the board of the New York Fed, one of J.P. Morgan's regulators, it's not all that uncommon.

But it is quite uncommon for a banker to be negotiating a bailout package for his bank with the New York Fed, while simultaneously serving on the New York Fed board. That's what happened in March 2008, when J.P. Morgan agreed to buy up Bear Stearns, on the condition that the Fed kick in $29 billion to cushion the company from any losses. Dimon-- CEO of J.P. Morgan and board member of the New York Fed-- was negotiating with Timothy Geithner, who was president of the New York Fed-- about how much money the New York Fed was going to give J.P. Morgan. On Wall Street, that's called being a savvy businessman. Everywhere else, it's called a conflict of interest.

6. Stephen Friedman

The New York Fed is just full of corruption. Consider the case of Stephen Friedman (expertly presented by Greg Kaufmann for the Nation). As the financial crisis exploded in the fall of 2008, Friedman was serving both as chairman of the New York Fed and on the board of directors at Goldman Sachs. The Fed stepped in to prevent AIG from collapsing in September 2008, and by November, the New York Fed had decided to pay all of AIG's counterparties 100 cents on the dollar for AIG's bets—even though these companies would have taken dramatic losses in bankruptcy. The public wouldn't learn which banks received this money until March 2009, but Friedman bought 52,600 shares of Goldman stock in December 2008 and January 2009, more than doubling his holdings.

As it turns out, Goldman was the top beneficiary of the AIG bailout, to the tune of $12.9 billion. Friedman made millions on the Goldman stock purchase, and is yet to disclose what he knew about where the AIG money was going, or when he knew it. Either way, it's pretty bad—if he knew Goldman benefited from the bailout, then he belongs in jail. If he didn't know, then what exactly was he doing as chairman of the New York Fed, or on Goldman's board?

7. Robert Steel

Like better-known corruptocrats Robert Rubin and Henry Paulson, Steel joined the Treasury after spending several years as a top executive with Goldman Sachs. Steel joined the Treasury in 2006 as Under Secretary for Domestic Finance, and proceeded to do, well, nothing much until financial markets went into free-fall in 2008. When Wachovia ousted CEO Ken Thompson, the company named Steel as its new CEO. Steel promptly bought one million Wachovia shares to demonstrate his commitment to the firm, but by September, Wachovia was in dire straits. The FDIC wanted to put the company through receivership—shutting it down and wiping out its shareholders.

But Steel's buddies at Treasury and the Fed intervened, and instead of closing Wachovia, they arranged a merger with Wells Fargo at $7 a share—saving Steel himself $7 million. He now serves on Wells Fargo's board of directors.

8. Henry Paulson

His time at Goldman Sachs made Henry Paulson one of the richest men in the world. Under Paulson's leadership, Goldman transformed from a private company ruled by client relationships into a public company operating as a giant global casino. As Treasury Secretary during the height of the financial crisis, Paulson personally approved a direct $10 billion capital injection into his former firm.

But even before that bailout, Paulson had been playing fast and loose with ethics rules. In June 2008, Paulson held a secret meeting in Moscow with Goldman's board of directors, where they discussed economic prognostications, market conditions and Treasury rescue plans. Not okay, Hank.

9. Warren Buffett

Warren Buffett used to be a reasonable guy, blasting the rich for waging "class warfare" against the rest of us and deriding derivatives as "financial weapons of mass destruction." These days, he's just another financier crony, lobbying Congress against Wall Street reform, and demanding a light touch on—get this—derivatives! Buffet even went so far as to buy the support of Sen. Ben Nelson, D-Nebraska, for a filibuster on reform. Buffett has also been an outspoken defender of Goldman Sachs against the recent SEC fraud allegations, allegations that stem from fancy products called "synthetic collateralized debt obligations"—the financial weapons of mass destruction Buffett once criticized.

See, it just so happens that both Buffet's reputation and his bottom line are tied to an investment he made in Goldman Sachs in 2008, when he put $10 billion of his money into the bank. Buffett has acknowledged that he only made the deal because he believed Goldman would be bailed out by the U.S. government. Which, in fact, turned out to be the case, multiple times. When the government rescued AIG, the $12.9 billion it funneled to Goldman was to cover derivatives bets Goldman had placed with the mega-insurer. Buffett was right about derivatives—they are WMD so far as the real economy is concerned. But they've enabled Warren Buffett to get even richer with taxpayer help, and now he's fighting to make sure we don't shut down his own casino.

10. Goldman SachsNo company exemplifies the revolving door between Wall Street and Washington more than Goldman Sachs. The four people on this list are some of the worst offenders, but Goldman's D.C. army has includes many other top officials in this administration and the last. White House: Joshua Bolton, chief of staff for George W. Bush, was a Goldman manRegulators:Current New York Fed President William Dudley is a Goldman manCurrent Commodity Futures Trading Commission Chairman Gary Gensler has been a responsible regulator under Obama, but he was a deregulatory hawk during the Clinton years, and worked at Goldman for nearly two decades before that.A top aide to Timothy Geithner, Gene Sperling, is a Goldman manCurrent Treasury Undersecretary Robert Hormats is a Goldman manCurrent Treasury Chief of Staff Mark Patterson is a former Goldman lobbyistFormer SEC Chairman Arthur Levitt is now a Goldman adviserNeel Kashkari, Henry Paulson's deputy on TARP, was a Goldman manCOO of the SEC Enforcement Division Adam Storch is a Goldman manCongress:Former Sen. John Corzine, D-N.J., was Goldman's CEO before Henry PaulsonRep. Jim Himes, D-Conn., was a Goldman Vice President before he ran for CongressFormer House Minority Leader Dick Gephardt, D-Mo., now lobbies for GoldmanAnd the list goes on.

Tuesday, May 11, 2010

The recent radioactive poisoning death in Delhi has once again highlighted the fact that the Civil Nuclear Liability Act being foisted on the nation will only help American companies get away with murder just as Union Carbide did after killing and maiming thousands in Bhopal. In the Mayapuri case one person died after coming into contact with a radioactive pencil that was disposed of by Delhi University as scrap, the vice chancellor appeared on TV to offer only an apology. No talk of compensation. This is going to be repeated on a horrific scale in case of an accident at nuclear power plants proposed to be built across the country. Sitaram Yechury argues why this the Civil Nuclear Liability Bill must be opposed

On the last day of the budget session of Parliament, the government hurriedly introduced the Civil Nuclear Liability Bill amid largescale protests by the Opposition.

The Left had opposed the introduction of the Bill itself on the grounds of violation of Article 21 of the Constitution, which guarantees protection of life and personal liberty.

Former Attorney General Soli Sorabjee says, “In view of Supreme Court judgements which are part of Indian jurisprudence and whose thrust is for the protection of victims of accidents as part of their fundamental rights under Article 21 of the Constitution there is no warrant or justification for capping nuclear liability.”

However, it is precisely such a cap that the Civil Nuclear Liability Bill introduces.
The proposed Bill has sought to limit all liability arising out of a nuclear accident to only 300 million Special Drawing Rights (about $450 million) and the liability of the operator only to Rs 300 crore.

The difference between $450 million and Rs 300 crore (about $67 million) is the government’s liability. Given that a serious accident can cause damage in billions, the small cap of $450 million that’s been proposed shows the scant regard the the UPA has for the people.

The Bhopal Settlement of $470 million reached between the government of India and Union Carbide and accepted by the Supreme Court, has been shown to be a gross underestimation. Even today, gas victims are suffering and have received only meagre compensation.

It is unconscionable of the UPA government to suggest that all nuclear accidents, which have the potential of being much larger than Bhopal, be capped at a figure that has already been shown to be a gross underestimate. Since the government wants to allow private operators in the nuclear power sector, this low level for compensation is meant to serve their interests too.

Apart from this, the minuscule liability of Rs 300 crore for the actual operator is tantamount to encouraging the operator to play with plant safety.

The Indian legal regime is quite clear: for hazardous industries, the plant owners have strict liability. Neither does the law accept any limits to liability — the party concerned must not only pay full compensation but also the cost of any environmental damage that any accident may cause. The Oleum leak from Sriram Food and Fertility settled the liability regime in India and any legislation seeking to cap liability will be completely retrogressive.

Contrary to the claims being made, the Vienna Convention — the basis of the proposed Nuclear Liability Bill — does not cap nuclear liability but only puts a minimum floor. It also allows countries to operate their liability regimes. For example, Germany, Japan and Finland all have unlimited liability, the same as current Indian law.

The US has a liability cap of $10.2 billion. Not only is the Indian government proposing to cap liability of nuclear plants, but it is also proposing a cap of only $450 million, way below the consequences of any serious nuclear accident. It appears that in order to promote private nuclear power and foreign suppliers, the UPA government is willing to sacrifice its own people.

The suppliers’ liability is also being considerably weakened by the proposed Bill. Instead of the normal contract law, where recourse of the operator to claim damages is inherent, the Bill limits this recourse only if it is explicitly mentioned in the contract. Otherwise, the nuclear operator cannot claim compensation from the supplier of equipment even if it is shown to be faulty.

It is evident that contracts for buying US nuclear reactors will explicitly exclude any liability on the part of the suppliers and, therefore, by the law to be adopted, they will go scot-free even if an accident occurs due to a defect in the equipment supplied by a US company.

In fact the UPA-II government wanted such a legislation, which the prime minister could carry with him to the Nuclear Security Summit that President Obama convened in Washington in April. However, following the controversial passage of the Women’s Reservation Bill in the Rajya Sabha with the help of marshals, the crucial support of 47 Lok Sabha MPs belonging to the BSP, SP and RJD was not forthcoming.

This obstacle, however, appears to have been overcome now through possibly some ‘bargain’ similar to what happened at the time of the passage of the Indo-US nuclear deal.

The US is insisting that this law be enacted to protect US suppliers of nuclear equipment from liability to pay compensation in the case of a nuclear accident. Currently, only the State-run Nuclear Power Corporation of India Ltd. under the existing Atomic Energy Act can operate nuclear power plants. But with the opening up of international nuclear commerce, US companies have sought a civil nuclear liability framework to be put in place before they enter.

The US government has linked the completion of the Indo-US nuclear agreement to India’s capping of nuclear liability. The UPA-I government, prior to the ratification of the 123 Agreement, had given a written commitment that India will buy nuclear reactors from the US totalling 10,000 megawatt of capacity.

This Bill has now been referred to the parliamentary standing committee for its consideration. It will now be tabled in the monsoon session. It is imperative for all political parties to ensure that the government is not allowed to disregard the life and safety of the Indian people through such a legislation. Article 21 of the Constitution and the various judgements of the Supreme Court cannot be allowed to be violated.

Saturday, May 8, 2010

The case for allowing foreign players in the higher education sector in India is weak and controversial and simply a ploy to create a window for foreign players and then changing the rules of the game in ways that persuade them to exploit the opportunity.

HRD Minister Kapil Sibal finally managed on May 3 to introduce in the Lok Sabha the Foreign Educational Institutions (Regulation and Entry and Operations) Bill 2010 amid protest by Left MPs to the proposed law.

The bill proposes that institutions aspiring to set up campuses in India will have to deposit Rs 50 crore as corpus fund. They will have to be registered with with UGC or any other regulatory body in place.

The bill, however, gives exemption to reputed foreign institutes from the tough conditions set for opening up campuses in India. The reputed universities will not have to go through the rigorous process of approval.

An advisory board will will recommend permission for such universities like Harvard, Yale, Cambridge, Oxford and similar institutions. They will not be required to deposit any corpus money.

However, the clause that foreign institutions cannot take away surplus money back to their respective countries also applies to all foreign institutions, including the reputed ones.

The bill stipulates a number of criteria for ensuring quality. The aspiring institute need to have minimum 20 years of standing in the country to which it belongs. It should have adequate finance and other resources to conduct the courses in India.

The bill says that an aspiring institution will apply for recognition as Foreign Education Provider in India. The application will be scrutinised by the accreditation authority and the UGC or any other commission in higher education. The commission will recommend to the government on whether the institute should be given recognition.

However, the bill, which is being referred to a parliamentary Standing Committee, raises more questions. My friend CP Chandrashekhar, professor of economics at JNU in New Delhi, argues that the case for allowing foreign players in the higher education sector in India is weak and controversial and simply a ploy to create a window for foreign players and then changing the rules of the game in ways that persuade them to exploit the opportunity.

There are two arguments, among many, that are being advanced to justify this desire for the foreign. The first is that it would substantially enhance quality in both the new institutions that would be set up by these foreign entities and, by example and the pressure of competition, in old and new institutions created by public and private Indian promoters. The second is that it would close the supply-demand gap.

The supply of higher educational facilities relative to requirements in this country is seen as so large that the government or Indian private players would not have the resources to fill the gap.

To clarify, the resources that the foreign entities would bring could not be real resources like faculty, administrators and material inputs like classrooms, libraries and labs. Foreign providers would have to find these resources largely from within the country, just as Indian promoters would have to, since importing all of it would make things so expensive that the investment would not make sense unless the intention is merely to throw away the money. “Resources” here means the requisite money.

Neither of the arguments—enhancing quality and augmenting supply—is particularly convincing even for those who are enamoured by these foreign brands and what they could contribute to the making of the modern Indian mind.

It is not that foreigners were barred from coming into the country in the past. They could through many routes subject to certain rules. But either because of the rules or because of mere disinterest not many big names even gave a thought to have an independent presence here (as opposed to collaborating in different ways with domestic institutions).

On the other hand, it is not true that no foreign institutions came into this country. Some did. But they were not the well known and what they offered here did not compare at all with the best or even less than best that Indian educational providers were offering. Both in terms of presence and quality history does not give cause for optimism.

The question then is, are the rules being changed to accommodate the foreign? The government states that it is only clarifying the rules and regulatory framework that would apply to foreign educational providers, and that in itself would serve to attract them to the country.

It is true that if foreign institutions are to be allowed at all, to provide education of any kind in the country, it is better that they operate within an appropriate framework of regulation. If not, unscrupulous operators can use the “foreign” tag to exploit poorly informed students who do not have the scores to enter a good national educational institution or the finances to travel abroad to acquire a good education.

In an environment where good higher educational facilities are in short supply, such operators could get away with charging high fees for courses backed by inadequately qualified faculty, inferior infrastructure and substandard equipment.

This has in recent years been a reality in India because of a mismatch between the law on foreign investment in educational provision and the law with regard to the functioning of “recognised” educational institutions.

The foreign investment law in this country does allow foreign educational providers to enter India under the automatic route in the educational services area. It therefore allows for commercial provision of educational services by foreigners and the repatriation of surpluses or “profits” earned through such activity.

However, the nature of such services must be “informal”. If an educational service provider (foreign or domestic) chooses to establish an institution that is termed a university and is recognised as such by the University Grants Commission (UGC) or if it awards a degree or diploma that is recognised by a range of institutions such as the All India Council on Technical Education (AICTE) or the Medical Council of India, then it would be subject to regulation just as any other Indian institution engaging in similar practices. That is, there is no separate set of rules to recognise and regulate foreign institutions.

This implies that recognised foreign educational institutions cannot (like private Indian ones) operate on a “for-profit” basis. Surpluses can be generated based on fees charged, but those surpluses have to be ploughed back into the institution.

This distinction in the regulatory framework, applying to institutions seeking recognition of their degrees and those that do not, did result in the proliferation of courses that are not recognised by government, in institutions that were, therefore, not subject to regulation under laws governing the higher education system.

Most of these institutions were in the private sector, with a majority being domestic private institutions and a few foreign. Some were good, many extremely bad. These institutions were not all avowedly “for-profit” entities, but there were many that made large surpluses legally and otherwise and distributed them in various ways to their promoters.

In some ways, what the Foreign Educational Institutions Bill does is that it seeks to bring certain of those foreign institutions within a separate, clearly defined regulatory framework, requiring institutions providing diplomas and degrees to register under a designated authority, making them subject to regulation and seeking under such regulation to ensure that the promoting institution has a proper pedigree, brings in adequate resources, employs quality faculty, offers adequate facilities, and reinvests all surpluses in the institution, which cannot function for profit.

However, even though these are not considered for-profit institutions, the government is not seeking to regulate the fees they charge the students they take in, set parameters for compensation for faculty, or impose demands such as reservation of seats for disadvantaged sections as it does in its own institutions.

There are three questions which arise in this context. One is whether the implementation of the Bill amounts to skewing further the inequality in access to higher education and tilting the playing field against public institutions. Clearly, the Bill does not allow for the application of laws with regard to affirmative action in the form of reservation of admissions to private institutions, domestic or foreign.

But if the infrastructure for higher education is inadequate, this is true not just for those who fall in what is termed the “general category”, but for those in the reserved categories as well, who need adequate numbers of seats to be reserved for them.

So if private, including foreign institutions, are seen as entities that would help close the demand-supply gap in higher education, they would need to service students in the categories eligible for affirmative action as well.

Since the aim of promoting private education, including that offered by foreign providers, is to make up for the shortfall in public education, the demand that reserved category students be admitted to these institutions with support from the state is bound to rise.

State money would provide access to the socially and economically disadvantaged to private institutions. That is, while the state is not going to regulate fees, it may be forced to demand some reservation by covering the fees charged by these institutions for those it wants to assure the access they are deprived of because of the social discrimination they face.

The obvious question that would then arise is whether it may not be better to use these funds to expand quality public education at lower cost per student. Hence, clarity on the government’s use of these institutions for closing the demand-supply gap would be useful.

If the direction of policy in other areas is indicative, the public-private partnership mantra would be used to justify supporting private provision by funding access to the disadvantaged with no regulation of costs or prices. In fact, the likelihood is that the implicit control would be on the “subsidy” offered to needy students, who then may have to make do with entry into poorer quality institutions.

A second question that arises is whether the better among foreign educational providers are likely to choose not to come into the country if stringent regulations are imposed on them.

With budgetary cuts for education in developed countries and with demographic changes affecting the size of the domestic college-going population in these countries, universities there may like to go abroad if they can earn surpluses to support domestic operations.

But if regulation includes the “not-for-profit” condition, which prevents them from extracting surpluses and transferring them abroad, they may see no reason to be in India.

Perhaps for this reason, the Act for the possibility that its provisions can be diluted. For example, as of now the Act provides for the constitution of an Advisory Board that can exempt any foreign provider of all requirements imposed by the Act except the requirement of being a not-for-profit body.

It also exempts institutions conducting any “certificate course” and awarding any qualification other than a degree or diploma to be exempt from most of the provisions of the Act, making them subject only to certain reporting requirements.

This amounts to saying that if a foreign provider enters the country, reports its presence, and advertises and runs only such “certificate courses” (as opposed to courses offering degrees and recognised diplomas), it would have all the rights that many of the so-called “fly-by-night” operators exploit today.

Once that possibility is recognised the only conclusion that can be drawn, based on the experience hitherto, is that this Act in itself is unlikely to either bring high quality education into the country, or keep poor quality education out. What motivates it, is therefore, unclear.

This raises the third question as to whether this bill is just the thin end of the wedge.

If foreign providers do not come in requisite measure, would the government use that “failure” to dilute the law even further and provide for profit and its repatriation by foreign operators in this sector?

Some time back, the commerce ministry had put out a consultation paper clearly aimed at building support for an Indian offer on education in the negotiations under the General Agreement on Trade in Services (GATS). The paper, while inviting opinions on a host of issues, was clearly inclined to offering foreign educational providers significant concessions that would facilitate their participation in Indian education.

In its view: “Given that India’s public spending, GER (gross enrolment ratio) levels and private sector participation are low, even when compared to developing countries, there appears to be a case for improving the effectiveness of public spending and increasing the participation of private players, both domestic and foreign.”

GATS is a trading agreement and therefore applies to those engaged in trade in services for profit. Providing such concession would force a fundamental transformation of the face of higher education in the country.

Put all of this together and both the motivation and the likely outcome of this bill remain unclear. If the intent is to attract new, more and better foreign investment in higher education to close the demand-supply gap, then the specific framework being chosen is likely to subvert its intent.

If the idea is to regulate only those who have been coming and would come, then a separate law just for foreign operators as opposed to all non-state players is inexplicable.

This suggests that the process underway is one of creating a window for foreign players and then changing the rules of the game in ways that persuade them to exploit the opportunity. This may explain the fear that the field would be skewed against domestic private players.

Thus, the case for this Act is weak and controversial. If the supply of educational facilities is low and of poor quality because public spending is low, the emphasis must clearly be on increasing allocations for education. This is likely to be extremely effective since India has the requisite institutional framework.

But there is no reason to believe, especially given past experience, that just allowing private entry, whether domestic or foreign, and the resources associated with it would indeed improve access and ensure quality. Unless the state pays the bill, which it claims in the first place it cannot.